Category: strategy

Market transitions in digital media can be absolutely fascinating both as a bystander and as a participant.

I’ve been on both the frontfoot and the backfoot as part of media businesses trying to lead, fast-follow, steer away from or kill different technologies and services that come and go.

Transitioning seems to be part of being in this business, something you’re always doing, not the end game.

There are a few patterns I’ve observed, but i’m hoping some clever business model historian will do some research and really nail down how it works.

There are job training issues that people face. Remember all those Lotus Notes specialists? Organizational issues. How about when the tech teams finally let editors control the web site home page? Leadership issues. It wasn’t until about 2003 before media CEOs started talking openly aout the day when their Internet businesses would overtake their traditional businesses. Technology strategies. Investing in template-driven web sites was once a major decision. Etc.

The mobile wave we’re in right now shares all the same issues for people who are in the business of running web sites. Re-educate your developers or hire new ones? Should mobile be a separate business; should it be added to the queue for the tech team; should the editors or product managers manage it? Is mobile-first a subset of digital-first or does it mean something more profound than that? Responsive, native, both? What’s the mobile pureplay for what you already do?

Media organizations have become so diverse over the last several years that they can easily get caught thinking that you can do all of the above – a hedge-your-bets strategy by investing lightly in all aspects of the transition. While that strategy has drawbacks it is definitely better than the hide-and-hope or cut-til-you-profit strategy.

The most interesting part of this story is about the anomolies, those moments of clarity that signal to the rest of us what is happening.

For example, everyone who disregarded the Newton and then the PalmPilot for failing missed the point. These were anomolies in a world dominated by Microsoft and the PC. They understood computing was going to be in people’s pockets, and they were right to execute on that idea.

What they failed to get right was timing of the market transition, and timing is everything.

(Harry McCracken’s retrospective review of the Newton is a fun read.)

So, when is an anomoly worth noticing? And when is the right time to execute on the new model?

Google has been a great example of both in many ways. They cracked one of the key business models native to the Internet at just the right time…they weren’t first or even best, but they got it right when it mattered. Android is another example.

But social has been one challenge after another. They ignored the anomoly that was Twitter and Facebook (and Orkut!) and then executed poorly over and over again.

They don’t want to be behind the curve ever again and are deploying some market tests around the ubiquitous, wearable network – Google Glass.

But if they are leading on this vision of the new way, how do they know, and, importantly, how do other established businesses know that this is the moment the market shifts?

I’m not convinced we’ve achieved enough critical mass around the mobile transition to see the ubiquitous network as a serious place to operate.

The pureplay revenue models in the mobile space are incomplete. The levels of investment being made in mobile products and services are growing too fast. The biggest catalysts of commercial opportunity are not yet powerful enough to warrant total reinterpretations of legacy models.

The mobile market is at its high growth stage. That needs to play out before the next wave will get broader support.

The ubiquitous network is coming, but the fast train to success aka ‘mobile’ has arrived and left the station and everyone’s onboard.

They’ve done a brilliant job transitioning to the mobile era. And you have to give them props for trying to lead on the next big market shift.

Even if Google gets it wrong with Google Glass (See Wired’s commentary) they are becoming very good at being in transition. If that is the lesson they learned from their shortcomings in ‘social’ then they may have actually gained more by doing poorly then if they had succeeded.

BBC offered another history of London documentary the other night, a sort of people’s perspective on how the character of the city has changed over time, obviously inspired by Danny Boyle’s Opening Ceremony at the Olympics.

Some of the sequences were interesting to me particularly as a foreigner – the gentrification of Islington, the anarchist squatters in Camden, the urbanization of the Docklands, etc. – a running theme of haves vs have-nots.

At a more macro level these things remind me of the need to challenge the many human constructs and institutions that are reflections of the natural desire to claim things and own them.

Why is it so difficult to embrace a more ‘share and share alike’ attitude? This is as true for children and their toys as it is for governments and their policies.

The bigger concern for me, of course, is the future of the Internet and how media and journalism thrive and evolve there.

Despite attempts by its founders to shape the Internet so it can’t be owned and controlled, there are many who have tried to change that both intentionally and unwittingly, occasionally with considerable success.

How does this happen?

We’re all complicit. We buy a domain. We then own it and build a web site on it. That “property” then becomes a thing we use to make money. We fight to get people there and sell them things when they arrive. It’s the Internet-as-retailer or Internet-as-distributor view of the world.

That’s how business on the Internet works…or is it?

While many have made that model work for them, it’s my belief that the property model is never going to be as important or meaningful or possibly as lucrative as the platform or service model over time. More specifically, I’m talking about generative media networks.

Here are a few different ways of visualizing this shift in perspective (more):

Even if it works commercially, the property model is always going to be in conflict with the Internet-as-public-utility view of the world.

Much like Britain’s privately owned public spaces issue, many worry that the Internet-as-public-utility will be ruined or, worse, taken from us over time by commercial and government interests.

Playing a zero sum game like that turns everyone and everything into a threat. Companies can be very effective at fighting and defending their interests even if the people within those companies mean well.

I’m an optimist in this regard. There may be a pendulum that swings between “own” and “share”, and there are always going to be fights to secure public spaces. But you can’t put the Internet genie back in the bottle. And even if you could it would appear somewhere else in another form just as quickly…in some ways it already has.

The smart money, in my mind, is where many interests are joined up regardless of their individual goals, embracing the existence of each other in order to benefit from each other’s successes.

The answer is about cooperation, co-dependency, mutualisation, openness, etc.

We think about this a lot at the Guardian. I recently wrote about how it applies to the recent Twitter issues here. And this presentation by Chris Thorpe below from back in 2009 on how to apply it to the news business is wonderful:

Of course, Alan Rusbridger’s description of a mutualised newspaper in this video is still one of the strongest visions I’ve heard for a collaborative approach to media.

The possibility of collective action at such an incredible scale is what makes the Internet so great. If we can focus on making collective activities more fruitful for everyone then our problems will become less about haves and have-nots and more about ensuring that everyone participates.

That won’t be an easy thing to tackle, but it would be a great problem to have.

Like many people, I’ve been thinking a lot about the live nature of the web more and more recently.

The startup world has gone mad for it. And though I think Microsoft’s Chief Software Architect Ray Ozzie played down the depth of Microsoft’s commitment to it in his recent interview with Steve Gillmor, it’s apparent that it’s at the very least a top-of-mind subject for the people at the highest levels of the biggest companies in the Internet world. As it should be.

(A DevLab is an internal research project where an individual or team pull out of the development cycle for a week and study an idea or a technology. There’s a grant associated with the study. They then share their findings with the entire team, and they share the grant with the individual who writes the most insightful peer review of the research.)

Many before me have noted the ambition and tremendous scale of the Wave effort. But I also find it fascinating how Google is approaching the development of the platform as a service.

The tendency when designing a platform is to create the rules and restrictions that prevent worst-case scenario behavior from ruining everything for you and your key partners. You release capability gradually as you understand its impact.

You then have to manage the constant demand from customers to release more and more capability.

Google turned this upside down and enabled a wide breadth of capability with no apologies for the unknowns. Developers won’t complain about lack of functionality. Instead it will probably have the opposite effect and invite the developers to tell Google how to close down the risks so their work won’t get damaged by the lawlessness of the ecosystem.

That’s a very exciting proposition, as if new land has been found where gold might be discovered.

But on the other hand, is it also a bit lazy or even irresponsible to put the task of creating the rules of the world that your service defines on the customers of your service? And do those partners then get a false sense of security because of that, as if they could influence the evolution of the platform in their favor when really it’s all about Google?

Google takes no responsibility for the bad things that may happen in the world they’ve created, yet they have retained full authority on their own for decisions about the service.

They’ve mitigated much of their risk by releasing the code as “open source” and allowing Wave to run in your own hosted environment as you choose. It’s a good PR move, but it may not have the effect they want it to have if they aren’t also sharing the way contributions to the code are managed and sharing in the governance.

Wave is an open network: anyone should be able to become a wave provider and interoperate with the public network

Wave is a distributed network model: traffic is routed peer-to-peer, not through a central server

Make rapid progress, together: a shared commitment to contribute to the evolution and timely deployment of protocol improvements

Community contributions are fundamental: everyone is invited to participate in the public development process

Decisions are made in public: all protocol specification discussions are recorded in a public archive

Those are definitions, not principles. Interestingly, there’s no commitment to opening decision-making itself, only sharing the results of decisions. Contrast that with Apache Foundation projects which have different layers of engagement and specific responsibilities for the different roles in a project. For example,

“a Project Management Committee member is a developer or a committer that was elected due to merit for the evolution of the project and demonstration of commitment. They have write access to the code repository, an apache.org mail address, the right to vote for the community-related decisions and the right to propose an active user for committership.”

That model may be too open for Google, but it would help a lot to have a team of self-interested supporters when things go wrong, particularly as there are so many security risks with Wave. If they are still the sole sponsor of the platform when the first damage appears then they will have to take responsibility for the problem. They can only use the “we don’t control the apps, only the platform” excuse for so long before it starts to look like a cop out.

Maybe they should’ve chosen a market they thought would run with it and offer it in preview exclusively for key partners in that market until Google understood how to position it. With a team of launch partners they would have seemed less autocratic and more trustworthy.

Shared ownership of the launch might also have resulted in a better first use-case app than the Wave client they invented for the platform. The Google Wave client may take a long time to catch on, if ever.

As Ray Ozzie noted,

“When you create something that people don’t know what it is, when they can’t describe it exactly, and you have to teach them, it’s hard…all of the systems, as long as I’ve been working in this area, the picture that I’ve always had in my mind is kind of three overlapping circles of technology, social dynamics, and organizational dynamics. And any two of those is relatively straightforward and understandable.”

I might even argue that perhaps Google actually made a very bad decision to offer a client at all. This was likely the result of failing to have a home for OpenSocial when it launched. Plus, it’s never a good idea to launch a platform without a principle customer app that can drive the initial requirements.

In my opinion, open conference-style IM and email or live collaborative editing within docs is just not groundbreaking enough as an end-user offering.

But the live web is fractionally about the client app.

The live web that matters, in my mind, harnesses real-time message interplay via multiple open networks between people and machines.

There’s not one app that runs on top of it. I can imagine there could be millions of client apps.

The Wave idea, whether it’s most potent incarnation is Wave itself or some combination of a Twitter/RabbitMQ mesh or an open XML P2P server or some other new approach to sharing data, is going to blow open the Internet for people once again.

I remember trying very hard to convince people that RSS was going to change the Internet and how publishing works several years ago. But the killer RSS app never happened.

It’s obvious why it feels like RSS didn’t take off. RSS is fabric. Most people won’t get that, nor should they have to.

In hindsight, I think I overvalued RSS but undervalued the importance of the idea…lubricating the path for data to get wherever it is needed.

I suspect Wave will suffer from many of the same issues.

Wave is fabric, too.

When people and things create data on a network that machines can do stuff with, the world gets really interesting. It gets particularly interesting when those machines unlock connections between people.

And while the race is on to come up with the next Twitter-like service, I just hope that the frantic Silicon Valley Internet platform architects don’t forget that it’s about people in the end.

One of the things many technology innovators forget to do is to talk to people. More developers should ask people about their day and watch them work. You may be able to breakthrough by solving real problems that real people have.

That’s a much better place to start than by inventing strategic points of leverage in order to challenge your real and perceived competitors.

I’ve stopped blogging over the last several weeks as I uprooted my family and moved to London to start my new job. But there have been some interesting things worth tracking recently I thought I might mention.

(Interestingly, Twitter usurped any blogging impulses I’ve had during the transition, but it’s time to get back into the long form dialog a little again now that we’re settling in here.)

First, I’m really pleased to see Yahoo!’s open strategy taking shape with things like SearchMonkey, Glue, and the forward-looking presentations done at Web 2.0 Expo. In my opinion, they are still underestimating the power of what Yahoo! could be doing by opening outwardly more, but the momentum is definitely in the right direction regardless of the distracting M&A discussions.

“As Starbucks and Wal-Mart are discovering, orthodox strategy was built for an industrial world – an equilibrium world of oligopolies, soulless “product”, and zombified “consumers”. But that’s not today’s world.”

Even better than his post, perhaps, is the comment stream which includes this insight from Mike Bonifer who compares today’s competitive landscape to the art of improvisation:

“What many do-gooders fail to acknowledge is that it is not enough to do good. One must also confront, then work artfully at marginalizing, out-witting, out-designing and out-performing the forces of evil that are afoot in the world. Forces like greed, hate, terror, racism, misunderstanding, obfuscation and fear. Heroism is only as strong as the calumny it overcomes.”

“Imagine that we lived in a world where all photography was the kind you see in magazines. In this world all photos are taken by professionals and all the people who got their pictures taken are models at the peak of their career. If you had your picture taken normally, you’d think you were hideously ugly. That is the musical world we grew up in, and it’s bogus. Things don’t have to be that way.”

Jon naturally moved the conversation to the problem of discoverability that has been increasingly difficult to deal with as more and more data builds out across the network. He notes some of the challenges as a consumer of interesting things and as someone who has something interesting to offer. He thinks the answer is a bit higher level than traditional syndication:

“There’s a way of publishing that allows something to flow on the network retaining its full fidelity and usability in other contexts.”

Lastly, the open data services space is getting really really interesting now as context and relevance find their way into the mix. For example, the Dash GPS formally rolled out their open service. And then a Guardian colleague pointed me to the AMEE service (“Avoiding Mass Extinctions Engine”) which finds itself being used on Dopplr and the the current Radiohead tour web site (click on ‘Carbon Calculator’).

There are tons of interesting developments unfolding, and I’m seeing all this stuff through fresh eyes again…one of the great benefits of changing jobs. I’ll do my best to keep the blogging energy up and to provide some analysis. Though I’m sure my perspective will shift a bit…to what, I really don’t know, yet.

There’s a reason that the world fully embraced HTTP but not Gopher or Telnet or even FTP. That’s because the power of the Internet is best expressed through the concept of a network, lots of interlinked pieces that make up something bigger rather than tunnels and holes that end in a destination.

The World Wide Web captured people’s imaginations, and then everything changed.

I was reminded of this while reading a recent interview with Tim Berners-Lee (via TechCrunch). He talked a bit about the power of linking data:

“Web 2.0 is a stovepipe system. It’s a set of stovepipes where each site has got its data and it’s not sharing it. What people are sometimes calling a Web 3.0 vision where you’ve got lots of different data out there on the Web and you’ve got lots of different applications, but they’re independent. A given application can use different data. An application can run on a desktop or in my browser, it’s my agent. It can access all the data, which I can use and everything’s much more seamless and much more powerful because you get this integration. The same application has access to data from all over the place…

Data is different from documents. When you write a document, if you write a blog, you write a poem, it is the power of the spoken word. And even if the website adds a lot of decoration, the really important thing is the spoken words. And it is one brain to another through these words.”

Data is what matters. It’s a point of interest in a larger context. It’s a vector and a launchpad to other paths. It’s the vehicle for leverage for a business on the Internet.

What’s the business strategy at the data layer?

I have mixed views on where the value is on social networks and the apps therein, but they are all showing where the opportunity is for services that have actually useful data. Social networks are a good user interface for distributed data, much like web browsers became a good interface for distributed documents.

But it’s not the data consumption experience that drives value, in my mind.

Value on the Internet is being created in the way data is shared and linked to more data. That value comes as a result of the simplicity and ease of access, in the completeness and timeliness, and by the readability of that data.

It’s not about posting data to a domain and figuring out how to get people there to consume it. It’s about being the best data source or the best data aggregator no matter how people make use of it in the end.

Where’s the money?

Like most Internet service models, there’s always the practice of giving away the good stuff for free and then upselling paid services or piggybacking revenue-generating services on the distribution of the free stuff. Chris Anderson’s Wired article on the future of business presents the case well:

“The most common of the economies built around free is the three-party system. Here a third party pays to participate in a market created by a free exchange between the first two parties…what the Web represents is the extension of the media business model to industries of all sorts. This is not simply the notion that advertising will pay for everything. There are dozens of ways that media companies make money around free content, from selling information about consumers to brand licensing, “value-added” subscriptions, and direct ecommerce. Now an entire ecosystem of Web companies is growing up around the same set of models.”

Yet these markets and technologies are still in very early stages. There’s lots of room for someone to create an open advertising marketplace for information, a marketplace where access to data can be obtained in exchange for ad inventory, for example.

Data providers and aggregators have a huge opportunity in this world if they can become authoritative or essential for some type of useful information. With that leverage they could have the social networks, behavioral data services and ad networks all competing to piggyback on their data out across the Internet to all the sites using or contributing to that data.

Regardless of the specific revenue method, the businesses that become a dependency in the Web of data of the future will also find untethered growth opportunities. The cost of that type of business is one of scale, a much more interesting place to be than one that must fight for attention.

I’ve never really liked the “walled garden” metaphor and its negative implications. I much prefer to think in terms of designing for growth.

Frank Lloyd Wright designed buildings that were engaged with the environments in which they lived. Similarly, the best services on the World Wide Web are those that contribute to the whole rather than compete with it, ones that leverage the strengths in the network rather than operate in isolation. Their existence makes the Web better as a whole.

I’m intrigued by the various ways people view ‘value’. There seem to be 2 camps: 1) people who view the world in terms of competition for finite resources and 2) people who see ways to create new forms of value and to grow the entire pie.

Umair Haque talks about choices companies make that push them into one of those 2 camps. He often argues that the market needs more builders than winners. He clarifies his position in his post The Economics of Evil:

“When you’re evil, your ability to co-create value implodes: because you make moves which are focused on shifting costs and extracting value, rather than creating it. …when you’re evil, the only game you want to – or can play – is domination.”

I really like the idea that the future of the media business is in the way we build value for all constituencies rather than the way we extract value from various parts of a system. It’s not about how you secure marketshare, control distribution, mitigate risk or reduce costs. It’s about how you enable the creation of value for all.

“Data isn’t the value. In fact, data’s a commodity…What is valuable are the things that create data: markets, networks, and communities.

Google isn’t revolutionizing media because it “owns the data”. Rather, it’s because Google uses markets and networks to massively amplify the flow of data relative to competitors.”

I would add that it’s not just the creation of valuable data that matters but also in the way people interface with existing data. Scott Karp’s excellent post on the guidelines for transforming media companies shares a similar view:

“The most successful media companies will be those that learn to how build networks and harness network effects. This requires a mindset that completely contradicts traditional media business practices. Remember, Google doesn’t own the web. It doesn’t control the web. Google harnesses the power of the web by analyzing how websites link to each other.”

What is it that makes my favorite online services so compelling? I’m talking about the whole family of services that includes Dopplr, Wesabe, Twitter, Flickr, and del.icio.us among others.

I find it interesting that people don’t generally refer to any of these as “web sites”. They are “services”.

I was fortunate enough to spend some time with Dopplr’s Matt Biddulph and Matt Jones last week while in London where they described the architecture of what they’ve built in terms of connected data keys. The job of Dopplr, Mr. Jones said, was to “surface coincidence”.

I think that term slipped out accidentally, but I love it. What does it mean to “surface coincidence”?

“It looks like serendipity, and in a way it is, but it’s manufactured serendipity.”

All these services allow me to manage fragments of my life without requiring burdensome tasks. They all let me take my data wherever I want. They all enhance my data by connecting it to more data. They all make my data relevant in the context of a larger community.

When my life fragments are managed by an intelligent service, then that service can make observations about my data on my behalf.

Dopplr can show me when a distant friend will be near and vice versa. Twitter can show me what my friends are doing right now. Wesabe can show me what others have learned about saving money at the places where I spend my money. Among many other things Flickr can show me how to look differently at the things I see when I take photos. And del.icio.us can show me things that my friends are reading every day.

There are many many behaviors both implicit and explicit that could be managed using this formula or what is starting to look like a successful formula, anyhow. Someone could capture, manage and enhance the things that I find funny, the things I hate, the things at home I’m trying to get rid of, the things I accomplished at work today, the political issues I support, etc.

But just collecting, managing and enhancing my life fragments isn’t enough. And I think what Matt Jones said is a really important part of how you make data come to life.

You can make information accessible and even fun. You can make the vast pool feel manageable and usable. You can make people feel connected.

And when you can create meaning in people’s lives, you create deep loyalty. That loyalty can be the foundation of larger businesses powered by advertising or subscriptions or affiliate networks or whatever.

The result of surfacing coincidence is a meaningful action. And those actions are where business value is created.

“Serendipity is the effect by which one accidentally discovers something fortunate, especially while looking for something else entirely.”

You might say that this is a criteria against which any new online service should be measured. Though it’s probably so core to getting things right that every other consideration in building a new online service needs to support it.

My second child is due next week. I intended to reconfigure our 1-bedroom house to create 2-bedrooms so that all 4 of us and the dog could spread out a bit.

Some amazing software from Google and Ikea made me feel more ambitious.

Now I have 2 unfinished bedrooms, a new but incomplete kitchen, dust in places I didn’t think dust could find, large and somewhat dangerous gaps in the floors and a couple of contractor battle scars. The new baby won’t remember the state of things, but no doubt my wife will keep the memory alive for years to come.

It all started with SketchUp. I spent several hours mapping out our house trying to assess what was possible. I was able to move walls around in a 3D model and imagine with some accuracy what it would be like to live in our remodelled house.

This visualization gave me language and vision to communicate with contractors and helped me budget the work. It also gave me the confidence to make some more dramatic changes than what we conceived in our heads.

What could have been a day or two of demolition and some simple framing work turned into major structural work that altered the feel of the house entirely.

Then, as we were closing down on the scope of the project and looking to finish in early August with plenty of time to spare, I started playing with Ikea’s downloadable kitchen planner software. Despite our time and budget constraints I couldn’t resist the idea of planning ahead a little.

After you design the space and create your grid, you choose cabinets from Ikea’s collection. You drag and drop them on the canvas and fit them together the way you want. It’s actually a lot of fun despite being very buggy.

When you give buyers power and easy onramps to services you turn them into valuable customers instead of just drive-by shoppers. Here’s how they hook you into buying from their shop…

Once you can see your kitchen in 3D and move it around and pretend to cook in it, you can then click to see a price sheet for your plan. Ikea, as you know, is very reasonably priced. So, suddenly you feel like you can afford an awesome new kitchen.

Now all I could think of was how to adjust our plans so that we could afford a new kitchen. I was also anxious to see if the kitchens looked ok or if they looked like the other prefab swedish lego blocks you often get from Ikea.

Ikea’s software is brilliant on several levels…

First, I’m much less likely to try another vendor once I’ve already perfected my plan. Second, they have enough range in their designs that you can’t help but think that one of the choices there will work. Third, you can essentially go out and get your kitchen now. They have to help you work out a few details, but you could, in theory, have your kitchen parts in hand same-day.

Whereas, we might have only considered Ikea for some handy paper towel hooks and cutlery organizers previously, we ended up buying everything but the countertop and appliances from Ikea.

The best part of doing your kitchen with Ikea’s planner, in my mind, is the fact that you can print out the plan and march into the building inspection office to get your plan approved on your own. My wife did just that without having any building experience. She was back home after an hour, permit approved. I really wish we had done that with the overall job, but instead we payed exorbitant fees for professional drawings. I’ll never make that mistake again.

There’s a ton of work left to do on the house that we don’t know exactly how to fund, yet.

I imagine smart retailers like Ikea are hoping that budget planning software doesn’t evolve fast enough to help people like me realize that my cash is probably better spent on things like dealing with the nails sticking out of my floors before I buy nice new cabinets.

The Internet platform business has some unique challenges. It’s very tempting to adopt known models to make sense of it, like the PC business, for example, and think of the Internet platform like an operating system.

The similarities are hard to deny, and who wouldn’t want to control the operating system of the Internet?

“Applications developed for this hypothetical platform have some powerful advantages. Because they run in a Web browser, these applications are cross platform, just like Web apps such as Gmail, Basecamp, and Salesforce.com. You don’t need to be on a specific machine with a specific OS…you just need a browser + local Web server to access your favorite data and apps.”

“Forget the traditional user interface. The looming battle in the information technology business is over control of the utility interface…Control over the utility interface will provide an IT vendor with the kind of power that Microsoft has long held through its control of the PC user interface.”

“I think it is a good idea for people to have a clear idea of what they are talking about when they throw around terms like “cloud OS” or “cloud platform” so we don’t end up with another useless term like SOA which means a different thing to each person who talks about it. Below are the three main ideas people often identify as a “Web OS”, “cloud OS” or “cloud platform” and examples of companies executing on that vision.”

Web-based Applications and APIs for Integrating with Them (The Google Strategy)

The OS metaphor has lots of powerful implications for business models, as we’ve seen on the PC. The operating system in a PC controls all the connections from the application user experience through the filesystem down through the computer hardware itself out to the interaction with peripheral services. Being the omniscient hub makes the operating system a very effective taxman for every service in the stack. And from there, the revenue streams become very easy to enable and enforce.

But the OS metaphor implies a command-and-control dynamic that doesn’t really work in a global network controlled only by protocols.

Internet software and media businesses don’t have an equivilent choke point. There’s no single processor or function or service that controls the Internet experience. There’s no one technology or one company that owns distribution.

There are lots of stacks that do have choke points on the Internet. And there are choke points that have tremendous value and leverage. Some are built purely and intentionally on top of a distribution point such as the iPod on iTunes, for example.

But no single distribution center touches all the points in any stack. The Internet business is fundamentally made of data vectors, not operational stacks.

Jeremy Zawodny shed light on this concept for me using building construction analogies.

He noted that my building contractor doesn’t exclusively buy Makita or DeWalt or Ryobi tools, though some tools make more sense in bundles. He buys the tool that is best for the job and what he needs.

My contractor doesn’t employ plumbers, roofers and electricians himself. Rather he maintains a network of favorite providers who will serve different needs on different jobs.

He provides value to me as an experienced distribution and aggregation point, but I am not exclusively tied to using him for everything I want to do with my house, either.

Similarly, the Internet market is a network of services. The trick to understanding what the business model looks like is figuring out how to open and connect services in ways that add value to the business.

“If they don’t ride the horse in the direction it’s going, it will run away from them. The companies that “grasp the nettle firmly” (as my English mother likes to say) will reap the benefits of greater control over their future than those who simply wait for events to overtake them.

There are a number of ways for a company to get benefits out of providing data to remote programmers:

Revenue. The brute force approach imposes costs both on the company whose data is being spidered and on the company doing the spidering. A simple API that makes the operation faster and more efficient is worth money. What’s more, it opens up whole new markets. Amazon-powered library catalogs anyone?

Branding. A company that provides data to remote programmers can request branding as a condition of the service.

Platform lock in. As Microsoft has demonstrated time and time again, a platform strategy beats an application strategy every time. Once you become part of the platform that other applications rely on, you are a key part of the computing infrastructure, and very difficult to dislodge. The companies that knowingly take their data assets and make them indispensable to developers will cement their role as a key part of the computing infrastructure.

Goodwill. Especially in the fast-moving high-tech industry, the “coolness” factor can make a huge difference both in attracting customers and in attracting the best staff.”

That doesn’t clearly translate into traditional business models necessarily, but if you look at key business breakthroughs in the past, the picture today becomes more clear.

The first breakthrough business model was based around page views. The domain created an Apple-like controlled container. Exposure to eyeballs was sold by the thousands per domain. All the software and content was owned and operated by the domain owner, except the user’s browser. All you needed was to get and keep eyeballs on your domain.

The second breakthrough business model emerged out of innovations in distribution. By building a powerful distribution center and direct connections with the user experience, advertising could be sold both where people began their online experiences and at the various independent domain stacks where they landed. Inventory beget spending beget redistribution beget inventory…it started to look a lot like network effects as it matured.

The third breakthrough business model seems to be a riff on its predecessors and looks less and less like an operating system. The next breakthrough is network effects.

Network effects happen when the value of the entire network increases with each node added to the network. The telephone is the classic example, where every telephone becomes more valuable with each new phone in the network.

This is in contrast to TVs which don’t care or even notice if more TVs plug in.

Recommendation engines are the ultimate network effect lubricator. The more people shop at Amazon, the better their recommendation engine gets…which, in turn, helps people buy more stuff at Amazon.

Network effects are built around unique and useful nodes with transparent and highly accessible connection points. Social networks are a good example because they use a person’s profile as a node and a person’s email address as a connection point.

Network effects can be built around other things like keyword-tagged URLs (del.icio.us), shared photos (flickr), songs played (last.fm), news items about locations (outside.in).

The contribution of each data point wherever that may happen makes the aggregate pool more valuable. And as long as there are obvious and open ways for those data points to talk to each other and other systems, then network effects are enabled.

Launching successful network effect businesses is no easy task. The value a participant can extract from the network must be higher than the cost of adding a node in the network. The network’s purpose and its output must be indespensible to the node creators.

Massively distributed network effects require some unique characteristics to form. Value not only has to build with each new node, but the value of each node needs to increase as it gets leveraged in other ways in the network.

For example, my email address has become an enabler around the Internet. Every site that requires a login is going to capture my email address. And as I build a relationship with those sites, my email address becomes increasingly important to me. Not only is having an email address adding value to the entire network of email addresses, but the value of my email address increases for me with each service that is able to leverage my investment in my email address.

Then the core services built around my email address start to increase in value, too.

For example, when I turned on my iPhone and discovered that my Yahoo! Address Book was automatically cooked right in without any manual importing, I suddenly realized that my Yahoo! Address Book has been a constant in my life ever since I got my first Yahoo! email address back in the ’90’s. I haven’t kept it current, but it has followed me from job to job in a way that Outlook has never been able to do.

My Yahoo! Address Book is becoming more and more valuable to me. And my iPhone is more compelling because of my investment in my email address and my address book.

Now, if the network was an operating system, there would be taxes to pay. Apple would have to pay a tax for accessing my address book, and I would have to pay a tax to keep my address book at Yahoo!. Nobody wins in that scenario.

User data needs to be open and accessible in meaningful ways, and revenue needs to be built as a result of the effects of having open data rather than as a margin-based cost-control business.

“One of the bitter truths about “Web 2.0” is that your data isn’t all that interesting, our data on the other hand is very interesting…A lot of “Web 2.0″ websites provide value to their users via wisdom of the crowds appproaches such as tagging or recommendations which are simply not possible with a single user’s data set or with a small set of users.”

Clearly, one of the most successful revenue-driving opportunities in the networked economy is advertising. It makes sense that it would be since so many of the most powerful network effects are built on people’s profiles and their relationships with other people. No wonder advertisers can’t spend enough money online to reach their targets.

It will be interesting to see how some of the clever startups leveraging network effects such as Wesabe think about advertising.

Wesabe have built network effects around people’s spending behavior. As you track your finances and pull in your personal banking data, Wesabe makes loose connections between your transactions and other people who have made similar transactions. Each new person and each new transaction creates more value in the aggregate pool. You then discover other people who have advice about spending in ways that are highly relevant to you.

I’ve been a fan of Netflix for a long time now, but when Wesabe showed me that lots of Netflix customers were switching to Blockbuster, I had to investigate and before long decided to switch, too. Wesabe knew to advise me based on my purchasing behavior which is a much stronger indicator of my interests than my reading behavior.

Advertisers should be drooling at the prospects of reaching people on Wesabe. No doubt Netflix should encourage their loyal subscribers to use Wesabe, too.

The many explicit clues about my interests I leave around the Internet — my listening behavior at last.fm, my information needs I express in del.icio.us, my address book relationships, my purchasing behavior in Wesabe — are all incredibly fruitful data points that advertisers want access to.

And with managed distribution, a powerful ad platform could form around these explicit behaviors that can be loosely connected everywhere I go.

Netflix could automatically find me while I’m reading a movie review on a friend’s blog or even at The New York Times and offer me a discount to re-subscribe. I’m sure they would love to pay lots of money for an ad that was so precisely targeted.

That blogger and The New York Times would be happy share revenue back to the ad platform provider who enabled such precise targeting that resulted in higher payouts overall.

And I might actually come back to Netflix if I saw that ad. Who knows, I might even start paying more attention to ads if they started to find me rather than interrupt me.

This is why the Internet looks less and less like an operating system to me. Network effects look different to me in the way people participate in them and extract value from them, the way data and technologies connect to them, and the way markets and revenue streams build off of them.

“Most of the focus on chaos theory is primarily rooted in the underlying patterns found in an otherwise chaotic enviornment, more specifically, concepts such as self-organization, bifurcation and self-similarity…

Self-organization, as opposed to natural or social selection, is a dynamic change within the organization where system changes are made by recalculating, re-inventing and modifying its structure in order to adapt, survive, grow and develop. Self-organization is the result of re-invention and creative adaptation due to the introduction of, or being in a constant state of, perturbed equilibrium.”

Yes, my PC is often in a state of ‘perturbed equilibrium’ but not because it wants to be.

Much like print and tv are becoming marketing vehicles to drive people online, the domain name for an online media service is becoming sort of an abstract utility or maybe just a brand address for media services rather than the real estate upon which the core activity occurs. The service a media vehicle provides matters more than the vehicle itself.

And this isn’t only happening in the content space. Every aspect of the media business is pointing to a services model. Here’s what the key pieces look like, in my mind:

Data is infinitely distributable. All data…not just editorialized words. The RSS standard opened the doors for vast distribution networks, and services like Yahoo! Pipes and Feedburner figured out how to make the distribution methods meaningful. There’s an endless supply of microchunks flying around the Internet, most of them unattached to any domain or URL except as a handy reference point.

Data can be visualized in meaningful ways. AJAX and the many freely available widget kits and javascript libraries such as YUI are rendering these microchunks in the right place at the right time in the right way for people which, again, is not always on a web site. The Internet user experience is no longer held back by the limitations of HTML and the packaging a site owner predefines for their media.

Media is created by everyone. Whether written in long form by a reporter or researcher, captured as video by a mobile phone owner, or simply clicked by a casual web site visitor, expressions of interest are shared, measured and interpreted in many different ways. This results in a seemingly neverending stream of media flowing in and out of every corner of the digital universe.

Distribution technologies are increasingly efficient and inexpensive. Personal media services like instant messaging, blog tools, podcasting and collaborative media services like Wikipedia, del.icio.us, Flickr, etc. are easy to use and often free. Web services and open source software enable people and companies to scale distribution and production functionality for large audiences or groups of users with negligeable costs. Most importantly, these tools enable people to be influential without ever owning a domain.

The distance between buyer and seller is shrinking. There are more and more ways for buyers to find sellers and sellers to find buyers from search engines to recommendation tools to coupon rss feeds, etc. Distributed ad markets like Right Media are enabling marketers and service providers to negotiate both the methods and the value of a marketing message. Advertising can operate as a service, too.

After re-reading this description myself, it looks like I’ve just echoed much of the whole Web 2.0 thing yet again. That makes me think I didn’t articulate the concept properly, as I believe there’s a very different way to visualize how data get created, packaged, distributed and remixed and how the various parts of a media business can be coupled both within the organization and across the wider network. Maybe that’s Web 2.0. Maybe it’s edge economics. SOA. Whatever.

The important thing is to think of how your media business can create for yourself or leverage how others offer Marketing As A Service, Sales As A Service, Operations As A Service, in addition to your editorial and community building efforts. Here’s a quick chart of how a media business might look that hopefully gets the point across:

Staffing Model

Source Data

Coopted Data

Distribution Services

EDITORIAL

Reporters, Community Managers, Assemblers (formerly known as ‘Producers’)

“Reach out to the community for bloggers, muckrakers and go-to experts. Each topic area would require more than just reacting to news. The Topic Chief would be sure to enlist as many experts as possible not only to be sources but to also be contributors, commenters, and word-of-mouth marketers. Anyone who possesses the skills that go beyond basic participation can be hired on as freelancers or even full-time staff.”

Similarly, Doc Searls’ “How To Save Newspapers” post also lays out what needs to happen on the editorial side. Here’s step #5 in his list:

“Start looking toward the best of those bloggers as potential stringers. Or at least as partners in shared job of informing the community about What’s Going On and What Matters Around Here. The blogosphere is thick with obsessives who write (often with more authority than anybody inside the paper) on topics like water quality, politics, road improvement, historical preservation, performing artisty and a zillion other topics. These people, these writers, are potentially huge resources for you. They are not competitors. The whole “bloggers vs. journalism” thing is a red herring, and a rotten one at that. There’s a symbiosis that needs to happen, and it’s barely beginning. Get in front of it, and everybody will benefit.”

There is lots of guidance for the newsroom, but all parts of a media business can become services.

“When paid-for banner ads lead to another site that’s supported by banner ads, you know that something’s wrong. Anyone who relies on that circular spending is asking for trouble.”

Marketing should be about enabling customer evangelists whether your customer is simply promoting your stuff for you or actually distributing and reselling it. Fred Wilson thinks of this in terms of “Superdistribution“:

“Superdistribution means turning every consumer into a distribution partner. Every person who buys a record, a movie, reads a newspaper, a book, every person who buys a Sonos or a Vespa becomes a retailer of that item. It’s word of mouth marketing, referral marketing, but with one important difference. The consumer is the retailer.”

None of this needs to happen on a single domain. The domain chain in any of these actions probably should be invisible to people, anyhow, except maybe to ground the events in trusted relationships.

Now, there are many domains that can create wonderfully useful and valuable destinations once they reach a certain critical mass. Invoking another over-used dotcom jargon word, this is what happens at the head of the long tail. And there are obviously lots of nice advantages of being in that position.

Most media companies want to be in that position and fight tooth and nail for it even if it just means being at the head of a niche curve. But instead of or maybe in addition to competing for position on the curve, most media companies need to think about how they provide relevant services outside of their domains that do something useful or valuable in meaningful ways across the entire spectrum.

Posting articles on your domain isn’t good enough any more. The constant fight for page views should be positive proof of that. There’s a bigger, deeper, longer term position out there as a critical part of a network. Sun Microsystems’ mantra “The Network is the Computer” is still meaningful in this context. What is your role if “The Network is the Media”?